Supreme Court slams Parsvnath over ‘one-sided’ contracts: Why Gurugram homebuyers now owe 8 per cent interest

“The power of the consumer fora to grant just and reasonable compensation for deficiency in service is traceable to the statute and cannot be curtailed by contractual terms which operate to the detriment of the consumer. The award therefore represents a legitimate and permissible exercise of statutory jurisdiction,” said the Supreme Court on February 20.

The NCDRC acted well within the ambit of its statutory authority in awarding compensation, said the Supreme Court. (Image enhanced using AI)

Consumer fora draw power from statute, not contract

• The jurisdiction of the consumer fora is traceable not merely to the contractual terms agreed between the parties but to the statute itself.
• The source of power, therefore, is statutory, and not contractual.
• The Consumer Protection Act, 1986 empower the consumer fora, including the NCDRC to adjudicate complaints relating to deficiency in service and to grant appropriate reliefs.
• The Act enables the NCDRC to issue directions and award compensation for loss or injury caused to a consumer.
• In the present case, the delay in completion and handing over of possession is not disputed.
• Such failure constitutes deficiency in service.
• The NCDRC acted well within the ambit of its statutory authority in awarding compensation.
• Compensation is not uniform and must be moulded in light of the nature of delay, conduct of the authority, and extent of harassment suffered.
• Compensation cannot follow a rigid or formulaic pattern.
• The quantum must depend upon the nature and extent of the loss suffered.
• Where possession is eventually delivered, compensation may ordinarily be lower since the allottee receives the benefit of appreciation.
• However, where refund alone is directed, compensation may be higher as the allottee is deprived of both possession and escalation in value.
• Compensation may include pecuniary loss as well as mental agony resulting from deficiency in service.
• The consumer fora must analyse the factual matrix and cannot mechanically restrict compensation to strict financial calculations alone.
• Detailed mathematical ascertainment of market decline is not a sine qua non; what is required is that the award be just, reasonable and proportionate to the delay, deprivation and hardship established on record.
• Award of interest at the rate of 8% per annum represents fair and reasonable compensation consistent with the principles laid down by this court.
• The same do not suffer from any perversity or jurisdictional error so as to warrant interference by this court.
• Flat purchasers are “consumers” under the Act, and delay in handing over possession amounts to deficiency in service.
• The consumer fora, in exercise of powers under Section 14, are competent to redress such deficiency and award just and reasonable compensation commensurate with the injury suffered.

Occupancy certificate: Non-negotiable requirement

• A critical issue in the case was the developer’s failure to obtain the occupancy certificate even after years of delay.
• The Supreme Court noted that despite a series of interim directions including an order dated February 12, 2021 requiring completion of construction and payment of contractual delay compensation the developer failed to secure the requisite OC.
• At one stage, it proposed handing over possession on an “as is where is” basis without statutory approvals.
• The Supreme Court made it clear that lawful possession cannot be forced upon a buyer without an occupancy certificate, reiterating that obtaining the OC is a statutory pre-condition integral to valid delivery of possession.

Final directions

• Dismissing all three appeals, the Supreme Court upheld the award of 8 per cent interest as fair and reasonable compensation.
• The apex court directed the developer to obtain the occupancy certificate and hand over possession in two cases within six months.
• The top court ordered continuation of compensation payments until lawful possession is delivered.
• In the third case, the Supreme Court directed payment of 8 percent interest from the agreed date of possession until August 14, 2022, after adjusting amounts already paid.

8 per cent interest held fair and reasonable

• The Supreme Court held that interest at 8 per cent per annum, as awarded by the NCDRC, was fair and reasonable.
• In the case where possession had been taken on August 14, 2022, the buyers were entitled to 8 per cent interest from the agreed date of possession until that date, after adjusting amounts already paid, said the Supreme Court.
• In the other two cases, the developer was directed by the Supreme Court to obtain the occupancy certificate and hand over possession within six months from the date of judgment, continuing to pay compensation until lawful possession is delivered.

Project that missed deadline by years

• The dispute arose out of three separate consumer complaints relating to flats in “Parsvnath Exotica“, a residential project at Sector 53, Gurugram.

Case 1: Civil appeal number 5289 of 2022

• The flat in question, B-5-501 measuring 3390 square feet was originally allotted on February 23, 2007 to Meera Mehra and Raj Kumar Mehra for a basic sale price of Rs 2.03 crore.
• The allotment was later endorsed in favour of one Dr Mohit Khirbat on May 20, 2011.
• Despite substantial payments having been made, possession was not delivered within the agreed timeline.

Case 2: Civil appeal number 5290 of 2022

• This matter concerned flat B-6-903 with an area of 3390 square feet, allotted on March 12, 2007 to Group Captain Suman Chopra for Rs 1.82 crore.
• The buyer had paid almost the entire consideration before the committed possession date of December 14, 2013, yet possession was not handed over.

Case 3: Civil appeal number 11047 of 2025

• The third appeal involved flat B-6-202 with an area of 3390 square feet originally allotted on February 14, 2011 to Gunja Infrastructure Private Limited, at a basic price of Rs 2.44 crore after rebate.
• The allotment was subsequently transferred to Noor Bhatia and Rakesh Bhatia, and later represented through a GPA holder.
• About 95 per cent of the sale consideration had been paid by 2013.
• However, possession was not delivered within the extended contractual period.
• Execution proceedings were eventually initiated before the NCDRC due to non-compliance, and non-bailable warrants were issued against the developer’s directors.
• Possession was finally taken on August 14, 2022 without an occupancy certificate due to the purchasers’ urgent need, and without prejudice to their rights.

Buyers approach NCDRC

• In each case, the buyers had booked 3390 square feet apartments and paid almost the entire sale consideration, running into crores of rupees, years before the promised date of possession.
• Under the flat buyer agreements, the developer was required to complete construction within 36 months from commencement of the relevant block, with a grace period of six months.
• Despite this timeline, possession was not delivered within the contractual or extended period.
• Left waiting for years, the buyers approached the NCDRC in 2017, alleging deficiency in service and seeking possession, compensation and costs.

What NCDRC Ordered

• In orders dated July 30, 2018 (in two complaints) and November 21, 2019 (in the third), the NCDRC directed the developer to complete construction and hand over possession by specified deadlines after obtaining the occupancy certificate.
• The national consumer body also directed to pay simple interest at 8 per cent per annum from the respective cut-off dates until actual delivery of possession.
• It also ordered an extended rebate for certain periods at the contractual rate.
• The NCDRC directed to pay Rs 25,000 towards litigation costs in each case and near any increase in stamp duty occurring after the stipulated dates .
• Challenging these directions, the developer approached the Supreme Court, contending that the NCDRC had travelled beyond its statutory jurisdiction.

Builder’s defence: Contract caps compensation

• The core argument of the developer before the Supreme Court was that Clause 10(c) of the flat buyer agreement fixed compensation for delay at Rs 10 per sq. ft. per month.
• Since the parties had agreed to this rate, the consumer forum, it argued, could not award a higher amount by way of interest.
• The builder also relied on other contractual provisions to contend that stamp duty and registration charges were payable by the buyer, and that the NCDRC’s direction to bear enhanced stamp duty was contrary to the agreement.
• Additionally, the developer attributed the delay to financial constraints, shortage of labour, escalation in costs, and delays in statutory approvals.